High School

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The formula for calculating net worth is:

1) Income minus liabilities.
2) Assets minus expenses.
3) Income minus expenses.
4) Assets minus liabilities.

Answer :

Final answer:

The correct formula for calculating net worth is assets minus liabilities, which is integral to determining wealth in personal and business finances. So, the correct option is 4) assets minus liabilities.

Explanation:

The formula for calculating net worth is assets minus liabilities. This calculation is fundamentally important in both personal finance and business accounting. Wealth is often measured by net worth, which includes the total assets such as home equity, and subtracts from it all owed liabilities. When these two values are put in a balance sheet format, assets are typically listed on the left side, with liabilities and net worth on the right side. The sum of liabilities and net worth must equal the sum of all the assets to balance out the sheet. In the context of a bank, net worth is particularly important as it represents the health of the institution, with a positive net worth indicating a healthy financial state and a negative net worth indicating bankruptcy.

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